Planning to buy a new car? Here are some tips to make the deal lighter on your pocket
The sight of a shiny new car can blind you into ignoring the details in the tedious paperwork. But did you know that zeroing in on the right auto loan and insurance can bring down your total cost by 30,000- 50,000. While your car dealer may offer you a seemingly perfect bundle of discounts, loans and insurance, it may not be the best offer in the market. It's common knowledge that a dealer would make around 2% commission on your 5-lakh or 10-lakh car loan, which is a significant amount of money and there is a lot of bargaining you can do at the dealership so that you get the best deal
So, if you are planning to buy a new car, here is how you can make the deal easier on your pocket.
AUTO LOAN
Let's start with the auto loan. Your car dealer will offer you a loan option along with the car but you are not obliged to go with his suggestion. You should shop around for at least three more lenders before you finalise your deal. There are several independent websites that will give you a comparison of the costs and interest rates on auto loans. Spending half an hour online researching for your loan could save you a lot of money. But when you are shopping around for a loan remember that there are three major factors that should help you make your decision. Like any other loan you may take, your auto loan involves an interest rate, a processing fee and a prepayment penalty. The best loan in the market would be a combination of the lowest interest rates and processing fees, good customer service and low prepayment penalty because you might want to pay off your loan in its entirety.
• Processing fees vary from 0.5% to 2%. Compare the fees across lenders online to find the cheapest loan. Your EMI will have processing fees and other costs worked into it. Most of the time, your agent or dealer won't give you the full break-up, but finding out the cost of your loan is not difficult. What you need to do is simply add up all the EMIs and the fees and deduct the on-road price of the car from that amount. You now have your total cost which should be the main criteria by which you will choose your loan.
• The interest rate from the same bank will vary based on the cost of the car, the duration of the loan and your credit history. Let's compare the total cost of all the loans available in the market for a 5- lakh car and a five-year loan, assuming the borrower has good credit history. HDFC Bank offers the cheapest loan at a fixed rate of 10% with a total cost of 20% of the borrowed amount. Punjab National Bank is a close second, offering an interest rate of 11% on a daily reducing basis which will cost 23% of the total cost. Reliance Customer Finance, which offers you a loan at 11% will cost you 23.2% . If you are buying a more expensive car for over 12 lakh, your interest rate will be far lower because the credit risk in the sedan segment is lower. But the bank will expect you to put down a larger down payment. However, if you borrow from the bank that you already have an account with, you may be able to get a better rate based on your relationship.
Now that you have the cheapest loan on paper, it's important to remember that smart negotiation with your car dealer can bring down your loan rate drastically. Apna Paisa's CEO Harsh Roongta says, "There are a lot of fat margins build for a good customer if he negotiates properly. Say on a loan of 7 lakh, he can save 25,000-30,000 if he negotiates properly. So, once you have the quote from the dealer, speak to the bank directly to see if you can bring down your rate."
• Most car owners start thinking about upgrading a car after three years. So, if you are planning to borrow for five years, make sure your loan has a low pre-payment penalty.
AUTO INSURANCE
Again, your dealer may offer you a policy that was included in the package of your car. But it might not have the best features. Today, insurance policies offer much more than a plain vanilla cover. You can get cashless garage facility or rental reimbursement that pays for a replacement vehicle while your vehicle is being repaired. Here is what should help you decide:
• The stiff competition in the market means customers can almost always find a better deal if they look for one. Auto insurance policies sold online offer rates 30-40% lower than policies bought from an agent or a dealer and require very little paperwork. So, go online to find the cheapest policy.
• Make sure your insurer offers you a cashless facility, which means the insurance company will settle the bill for your car directly with the workshop and you won't have to pay at all. And make sure your insurer has a large network of workshops across the country where you can use the cashless facility.
• Ask your insurer for a policy that includes benefits like a replacement car or a free-towing facility in case of an emergency.
After you've have zeroed in on the loan and the insurance policy, it never hurts to negotiate with your dealer for some freebies. Says Roongta, "The dealer normally tries to push for free accessories upfront because he has got the margin on the accessories. First negotiate for a drop in interest rates in cash. After you have reached the bottom level, then may be you can get something thrown in for free like panning the underside of the car with paint etc… the normal additional things."
